2009 Calgary Resource & Clean Energy Investment Conference

Transcription

1 2009 Calgary Resource & Clean Energy Investment Conference Calgary, Canada April 4, 2009 Presented by John Kaiser Workshop: Bottom-Fishing Strategies for the Gold Sector

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3 Ways to Profit from Gold Own physical bullion or coins: storage costs, punitive collectible taxation in US (ie 37% California), cost and hassle of selling gold, vulnerability to theft, nice to own some physical gold, but not a large chunk of one s net worth. Own Gold ETF: same US taxation as physical gold, but can be held inside retirement accounts, cannot take delivery, useless in a back to the caves collapse of civilization, has direct value erosion due to ETF adminsitrative cost, advantage of easy buying and selling, main value is to hedge a part of one s net worth against long term uncertainty and ease of liquidation. Futures & Options Trading: very leveraged, volatility of gold price can create huge losses, securities have expiration date, if you want to gamble there is no special reason to focus on gold. Invest in Gold Producers: changes in the price of gold have a leveraged impact on gold producers, entrepreneurial creativty is a major factor, how well does the producer grow its production and reduce its average cost per oz? Invest in marginal gold deposits: market assigns a low value to deposits whose economics are weak at prevailing gold prices, in the current climate where we don t know if gold will be $650 or $1,350 a year from now, with $1,350 uncharted territory, the market s inclination is to be pessimistic. A definitive breakout beyond $1,000 not accompanied by a collapsing US dollar or soaring inflation, would put many sleeper deposits into the money. Price appreciation would be fast, so one needs to bottom-fish for them now. Invest in gold deposits with an obstacle : some deposits have sufficient grade and tonnage to be economic, but cannot be put into production for various reasons such as infrastructure problems, metallurgy, social license, geopolitical risk, restrictive mining laws, environmental issues, and title issues. Some can be solved by the company, while others cannot. These companies have low valuations that would jump sharply if the obstacle is overcome. Invest in the exploration cycle: speculate on projects that are at different stages of the exploration cycle in the hope that a major discovery is made or the feasibility of a deposit gets established at prevailing gold price. This can produce the biggest gains, but there is little appetite at the moment for exploration.

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5 Different Gold Scenarios Fiat Currency Collapse: out of control across the board quantitative easing leads to hyper-inflation gold rises but so does the cost of everything else no benefits for gold companies, equity markets likely cease to operate, clumpiness of gold prevents it from serving as money. US Dollar Collapse: a severe decline of US dollar with corresponding rise in gold price leads to the loss of world s reserve currency status with no obvious near to medium term successor, resulting in serious currency volatility, although intrinsic cost structure of building and operating a gold mine remains unchanged, establishing the economics of a mine through a feasibility study becomes problematic what numbers would one use? During the US $ breakdown gold would break out, and gold equities would rise sharply during the initial stages but succumb to heavy selling from insiders and investors who understand that there is no underlying real profit window to exploit. Global Depression: cost deflation could create a profit window for gold mines as it did during the thirties, but then the price of gold was fixed in US dollars, a gold standard that fixes the price of gold will not return because the dynamics of gold extraction with modern technology are too complex to ensure a stable and predictable model for new gold supply. When slave labour and environmental abuse are deployed to produce gold, then you can no longer declare that gold is nobody s liability. If we get stuck in a long depression, gold will probably decline in price, and there will be a subdued appetite for speculative securities. World in Transition: in this scenario we see the United States pulling its economy out of the recession, and in doing so revitalizes the global economy, but at the price of a long term diminishment of the dominant role the US economy and its currency have enjoyed since WWII, until a global currency is established there will be a growing inclination to own gold at all levels, from individuals to sovereign wealth funds, which drives up the real price of gold in all currencies. This is the scenario most lucrative to the gold producers, because the revenue side of the equation expands at a greater rate than the cost side of the equation. The same applies to the raw materials sector, which will see demand once again outstrip supply as global economic growth gets back on track.

6 Catastrophic Collapse has created a once in a life time bottom-fishing window for the resource sector

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9 The Market Cycle Racing Ounces & Pounds in the Ground toward Production closely linked to the Commodity Cycle Gold Silver Platinum Palladium 1,301,656,659 12,944,652,803 24,897,219 45,094,590 oz oz oz oz Copper Nickel Zinc Lead Molybdenum Uranium Vanadium Tungsten 583,169,169,622 63,897,427, ,743,411,976 69,905,459,755 25,096,129,098 1,747,902, ,578,759 4,311,163,366 lb lb lb lb lb lb lb lb Spot GMV: 3 Year Average GMV: $3,411,047,451,402 $5,072,880,566,728

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14 Major Gold Producers 500,000+ oz per year

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16 Intermediate Gold Producers 100, ,000 oz per year

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18 Junior Gold Producers 25, ,000 oz per year

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21 Major Non Producers 3,000,000+ oz gold resource

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23 Intermediate Non Producers 1-33 million oz gold resource

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25 Junior Non Producers 500,000-1,000,000 oz resource

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29 2 Types of Resource Sector Story Speculation Cycles Commodity Speculation Resource Estimates - Ounces & Pounds in the Ground Focused on development portion of exploration cycle: infill drilling, metallurgy, prefeasibility, feasibility/permitting, construction Vulnerable to geopolitical risk and commodity price voltaility Valuation based on DCF Method & Peer Group Comparison Financing Intensive a more institutional and less retail audience (oil, gold, copper), (base metals), (gold?) Discovery Speculation No Resource Estimates just geology & location Focused on early discovery part of exploration cycle: grassroots, target generation & drilling, discovery delineation Speculation focused on grade and tonnage, repeatability by area player or conceptually similar plays, commodity price irrelevant Valuation based on Rational Speculation Model Financing comes from sophisticated investor & retail audiences (Hemlo, Eskay Creek, Ekati, Voisey s Bay, Busang, Veladero), (Fruta del Norte), (a comeback?)

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31 Grassroots Target Drilling Discovery Delineation

32 Infill Drilling Metallurgy Prefeasibility

33 Feasibility-Permitting Construction-Commissioning Commissioning Production

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35 Kaiser Services Kaiser Bottom-Fish Online Membership US $250 per quarter or $800 per year One time one month KBFO Trial at $100 Kaiser Blog Membership - free